Iridium Communications Inc.
Iridium Communications Inc. (Form: 8-K, Received: 04/27/2017 07:03:17)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) April 27, 2017

 

 

Iridium Communications Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-33963   26-1344998

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

1750 Tysons Boulevard

Suite 1400

McLean, VA 22102

(Address of principal executive offices)

703-287-7400

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On April 27, 2017, Iridium Communications Inc. issued a press release announcing its financial results for the quarter ended March 31, 2017. The text of the press release is included as an exhibit to this Form 8-K. Pursuant to the rules and regulations of the Securities and Exchange Commission, such exhibit and the information set forth therein and herein are deemed to be furnished and shall not be deemed to be filed.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit
Number

  

Description

99.1    Press release dated April 27, 2017


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

      IRIDIUM COMMUNICATIONS INC.
Date: April 27, 2017     By:   /s/ Thomas J. Fitzpatrick
      Name:   Thomas J. Fitzpatrick
      Title:   Chief Financial Officer

Exhibit 99.1

 

LOGO

FOR RELEASE THURSDAY, APRIL 27, 2017

 

Investor Contact:

  

Press Contact:

Kenneth Levy

  

Jordan Hassin

Iridium Communications Inc.

  

Iridium Communications Inc.

+1 (703) 287-7570

  

+1 (703) 287-7421

ken.levy@iridium.com

  

jordan.hassin@iridium.com

IRIDIUM ANNOUNCES FIRST-QUARTER 2017 RESULTS; COMPANY

AFFIRMS 2017 AND LONG-RANGE OUTLOOK

MCLEAN, Va. – April 27, 2017 – Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”) today reported financial results for the first quarter of 2017 and affirmed its full-year 2017 and long-range outlook. Net income was $37.9 million, or $0.30 per diluted share, for the first quarter of 2017, as compared to $28.5 million, or $0.23 per diluted share, for the first quarter of 2016. Operational EBITDA (“OEBITDA”) (1) for the first quarter was $64.3 million, as compared to $60.7 million for the prior-year period, representing a year-over-year increase of 6% and an OEBITDA margin (1) of 62%. OEBITDA grew primarily due to the recognition of a $3.2 million cash credit triggered by the Company’s insourcing transaction with Boeing, which took effect in January 2017, as well as higher commercial service revenue from the Company’s machine-to-machine (“M2M”) business.

Iridium reported first-quarter total revenue of $104.4 million, which consisted of $81.8 million of service revenue and $22.7 million of revenue related to equipment sales and engineering and support projects. Though total revenue was essentially flat versus the comparable period of 2016, service revenue grew 2% from the year-ago period. Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, was 78% of total revenue for the first quarter of 2017.

The Company ended the quarter with 869,000 total billable subscribers, which compares to 788,000 for the year-ago period and is up from 850,000 for the quarter ended December 31, 2016. Total billable subscribers grew 10% year-over-year, driven by growth in M2M and government customers.


“Strong subscriber additions in commercial M2M helped to fuel Iridium’s service revenue growth during the first quarter. We expect this strength to continue in 2017 and remain comfortable with our full-year guidance, which we affirmed this morning,” said Matt Desch, CEO, Iridium.

Commenting on Iridium ® NEXT, Desch said, “Our first batch of Iridium NEXT satellites is now operational and working well for Iridium’s global base of subscribers. We remain on track for our second launch with SpaceX and have been confirmed for a launch on June 29 th at 1:02pm PDT from Vandenberg Air Force Base.”

Iridium Business Highlights

Service – Commercial

Commercial service remained the largest part of Iridium’s business, representing 57% of the Company’s total revenue during the first quarter. The Company’s commercial customer base is diverse and includes markets such as maritime, aviation, oil and gas, mining, recreation, forestry, construction, transportation and emergency services. These customers rely on Iridium’s products and services as critical to their daily operations and integral to their communications and business infrastructure.

 

    Commercial service revenue was $59.8 million, up 3% from last year’s comparable period.

 

    Commercial voice and data subscribers increased 1% from the year-ago period to 351,000 customers. Commercial voice and data average revenue per user (“ARPU”) was down slightly during the first quarter to $39. Commercial M2M data subscribers grew 18% from the year-ago period to 432,000 customers. Commercial M2M data ARPU was down slightly during the first quarter to $13.

 

    Iridium’s commercial business ended the quarter with 783,000 billable subscribers, which compares to 713,000 for the year-ago period and is up from 766,000 for the quarter ended December 31, 2016. M2M data subscribers represented 55% of billable commercial subscribers at the end of the quarter, an increase from 51% at the end of the prior-year period.


Service – Government

Iridium’s voice and data solutions improve situational awareness for military personnel and track critical assets in tough environments around the globe, providing a unique value proposition that is not easily duplicated. The Company operates under two Defense Information Systems Agency (“DISA”) contracts, which include a $400 million, five-year, fixed-price agreement for satellite communications services and a $38 million multi-year contract to support and maintain the Department of Defense’s (“DoD”) dedicated gateway.

 

    Government service revenue was $22 million, consistent with the prior-year period, as the final step up in the fixed fee under the Company’s airtime services contract with DISA occurred in 2015.

 

    Iridium’s government business ended the quarter with 86,000 subscribers, which compares to 75,000 for the year-ago period and is up from 84,000 for the quarter ended December 31, 2016. Government voice and data subscribers increased 10% from the year-ago period to 45,000 as of March 31, 2017. M2M data subscribers increased 21% year-over-year and represented 48% of government subscribers, an increase from 45% at the end of the prior-year period.

Equipment

 

    Equipment revenue was $17.1 million during the first quarter, down 3% from the prior-year period.

 

    As previously indicated, the Company expects lower equipment sales in 2017.


Engineering & Support

 

    Engineering and support revenue was $5.5 million during the first quarter, compared to $6.8 million in the prior-year’s quarter, primarily due to the episodic nature of government-sponsored projects.

Capital expenditures were $48.9 million for the first quarter and primarily related to spending for the Company’s next-generation satellite constellation, Iridium NEXT. The Company ended the first quarter with a cash and marketable securities balance of $419.1 million and gross debt of $1.80 billion. Net debt was $1.25 billion, calculated as $1.80 billion of gross debt, less $0.42 billion of cash and marketable securities, as well as $0.14 billion in restricted cash.

2017 Outlook

The Company affirmed its full-year 2017 outlook for total service revenue growth and OEBITDA. The Company continues to expect:

 

    Total service revenue growth between 3% and 5% for the full-year 2017.

 

    Full-year 2017 OEBITDA between $255 million and $265 million. OEBITDA for 2016 was $254.2 million.

 

    

2017 Outlook

(February 2017)

  

2017 Outlook

(April 2017)

Total Service

Revenue Growth

   3% to 5%    Affirmed

Operational EBITDA

(OEBITDA)

   $255 million to $265 million    Affirmed


Long-Range Outlook

The Company also affirmed its long-range outlook for total service revenue growth, OEBITDA margin, cash taxes, peak net leverage and 2019 net leverage. Based on the expected 2018 Iridium NEXT system completion, the Company continues to expect:

 

    Total service revenue between $440 million and $465 million for the full-year 2019.

 

    OEBITDA margin of approximately 60% in 2019.

 

    Negligible cash taxes from 2017 to approximately 2020.

 

    Peak net leverage of 6.0x to 6.5x OEBITDA in 2017.

 

    Net leverage of below 4x OEBITDA in 2019.

 

    

Long-Range Outlook

(February 2017)

  

Long-Range Outlook

(April 2017)

Total Service Revenue   

$440 million to $465 million for

the full-year 2019

   Affirmed

Operational EBITDA

(OEBITDA) Margin

   Approximately 60% in 2019    Affirmed
Cash Taxes   

Negligible cash taxes from 2017

to approximately 2020

   Affirmed
Peak Net Leverage    6.0x – 6.5x OEBITDA in 2017    Affirmed
Net Leverage    Below 4x OEBITDA in 2019    Affirmed

Non-GAAP Financial Measures & Definitions

 

(1)

In addition to disclosing financial results that are determined in accordance with U.S. GAAP, the Company provides Operational EBITDA and Operational EBITDA margin, which are non-GAAP financial measures, as supplemental measures to help investors evaluate the Company’s fundamental operational performance. Operational EBITDA represents earnings before interest, income taxes, depreciation and amortization, Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium NEXT only), loss from investment in Aireon, share-based compensation expenses, the impact of purchase accounting, and non-cash gain


  from the Boeing transaction. Iridium NEXT revenue and expenses are expected to be excluded from Operational EBITDA through late 2017. In late 2017, Iridium NEXT revenues are expected to exceed recurring Iridium NEXT expenses (recurring Iridium NEXT expenses are not part of the approximately $3 billion construction cost of Iridium NEXT (the “Construction Costs”)). Accordingly, the Company expects that beginning in late 2017, Iridium NEXT revenues and these recurring expenses will no longer be excluded in calculating Operational EBITDA. U.S. GAAP requires that certain of the Construction Costs be expensed. These certain Construction Costs, which beginning in late 2017 will principally consist of in-orbit insurance, will continue to be excluded from the calculation of Operational EBITDA through 2018. The Company also presents Operational EBITDA expressed as a percentage of GAAP revenue, or Operational EBITDA margin. Operational EBITDA, along with its related measure, Operational EBITDA margin, does not represent, and should not be considered, an alternative to U.S. GAAP measurements such as net income or loss, and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating interest, income taxes, depreciation and amortization, Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium NEXT only), loss from investment in Aireon, share-based compensation expenses, the impact of purchase accounting, and non-cash gain from the Boeing transaction, the Company believes the result is a useful measure across time in evaluating its fundamental core operating performance. Management also uses Operational EBITDA to manage the business, including in preparing its annual operating budget, debt covenant compliance, financial projections and compensation plans. The Company believes that Operational EBITDA is also useful to investors because similar measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies in similar industries. However, there is no standardized measurement of Operational EBITDA, and Operational EBITDA as the Company presents it may not be comparable with similarly titled non-GAAP financial measures used by other companies. As indicated, Operational EBITDA does not include interest expense on borrowed money, the payment of income taxes, amortization of the Company’s definite-lived intangible assets, or depreciation expense on the Company’s capital assets, which are necessary elements of the Company’s operations. It also excludes expenses in connection with the development, deployment and financing of Iridium NEXT


  and the loss from investment in Aireon. Since Operational EBITDA does not account for these and other expenses, its utility as a measure of the Company’s operating performance has material limitations. Due to these limitations, the Company’s management does not view Operational EBITDA in isolation, but also uses other measurements, such as net income, revenues and operating profit, to measure operating performance. Please refer to the schedule below for a reconciliation of consolidated GAAP net income to Operational EBITDA and Iridium’s Investor Relations webpage at www.iridium.com for a discussion and reconciliation of this and other non-GAAP financial measures.

lridium Communications Inc.

Supplemental Reconciliation of GAAP Net Income to Operational EBITDA

(In thousands)

 

     Three Months Ended
March 31,
 
     2017      2016  

GAAP net income

   $ 37,948      $ 28,520  

Interest expense

     96        483  

Interest income

     (929      (1,241

Income taxes

     18,400        15,000  

Depreciation and amortization

     13,507        12,936  

Iridium NEXT expenses, net

     2,840        3,023  

Share-based compensation

     3,481        2,193  

Non-cash purchase accounting

     —          (208

Non-cash gain on Boeing transaction

     (11,003      —    
  

 

 

    

 

 

 

Operational EBITDA

   $ 64,340      $ 60,706  
  

 

 

    

 

 

 

Conference Call Information

As previously announced, the Company will host a conference call to discuss its results at 8:30 a.m. ET on Thursday, April 27, 2017. Callers should dial (877) 334-1964 (U.S. only) or (631) 291-4574 (from outside the U.S.) to access the call. The conference call ID is 92473444. The conference call will also be simultaneously webcast on Iridium’s Investor Relations webpage at www.iridium.com . An archive of the webcast will be available following the live conference call.


About Iridium Communications Inc.

Iridium ® is the only mobile voice and data satellite communications network that spans the entire globe. Iridium enables connections between people, organizations and assets to and from anywhere, in real time. Together with its ecosystem of partner companies, Iridium delivers an innovative and rich portfolio of reliable solutions for markets that require truly global communications. The company has a major development program underway for its next-generation network – Iridium NEXT. Iridium Communications Inc. is headquartered in McLean, Va., U.S.A., and its common stock trades on the NASDAQ Global Select Market under the ticker symbol IRDM. For more information about Iridium products, services and partner solutions, visit www.iridium.com . IRDM-F

Forward-Looking Statements

Statements in this press release that are not purely historical facts may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding Iridium’s expectations with respect to total service revenue growth and OEBITDA for 2017; service revenue, OEBITDA margin, cash taxes and leverage over the longer-term; the development of and timing for launch and completion of Iridium NEXT; anticipated equipment revenue; and expected revenue from Iridium’s contracts with the U.S. Department of Defense. Forward-looking statements can be identified by the words “anticipates,” “may,” “can,” “believes,” “expects,” “projects,” “intends,” “likely,” “will,” “to be” and other expressions that are predictions or indicate future events, trends or prospects. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Iridium to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, uncertainties regarding customer demand for Iridium’s products and services, including demand from the U.S. Government; Iridium’s ability to maintain the health, capacity and content of its current satellite constellation; the manufacture and launch of and transition to Iridium NEXT, and the development of and market for Iridium’s products and services, as well as general industry and economic conditions, and competitive, legal, governmental and technological factors. Other factors that could cause actual results to differ materially from those indicated by the forward-looking statements include those factors listed under the caption “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2017, as well as other filings Iridium makes with the SEC from time to time. There is no assurance that Iridium’s expectations will be realized. If one or more of these risks or uncertainties materialize, or if Iridium’s underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. Iridium’s forward-looking statements are based on information available to it as of the date of this press release and speak only as of the date of this press release, and Iridium undertakes no obligation to update forward-looking statements. ###


Iridium Communications Inc.

Consolidated Statements of Operations

(In thousands)

 

     Three Months Ended
March 31,
 
     2017     2016  

Revenue

    

Service revenue

    

Commercial

   $ 59,773     $ 57,823  

Government

     22,000       22,000  
  

 

 

   

 

 

 

Total service revenue

     81,773       79,823  

Subscriber equipment

     17,114       17,560  

Engineering and support service

     5,539       6,819  
  

 

 

   

 

 

 

Total revenue

     104,426       104,202  

Operating expenses

    

Cost of services (exclusive of depreciation and amortization)

     16,958       15,903  

Cost of subscriber equipment sales

     10,104       10,463  

Research and development

     3,227       2,559  

Selling, general and administrative

     19,217       19,063  

Depreciation and amortization

     13,507       12,936  
  

 

 

   

 

 

 

Total operating expenses

     63,013       60,924  
  

 

 

   

 

 

 

Gain on Boeing transaction

     14,189       —    
  

 

 

   

 

 

 

Operating income (expense)

     55,602       43,278  
  

 

 

   

 

 

 

Other income (expense)

    

Interest income, net

     833       758  

Undrawn credit facility fees

     (25     (503

Other expense, net

     (62     (13
  

 

 

   

 

 

 

Total other income (expense)

     746       242  
  

 

 

   

 

 

 

Income (loss) before income taxes

     56,348       43,520  

Provision for income taxes

     (18,400     (15,000
  

 

 

   

 

 

 

Net income (loss)

     37,948       28,520  

Series A Preferred Stock dividends

     1,750       1,750  

Series B Preferred Stock dividends

     2,109       2,109  
  

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 34,089     $ 24,661  
  

 

 

   

 

 

 

Operational EBITDA

   $ 64,340     $ 60,706  


Iridium Communications Inc.

Summary Revenue and OEBITDA Highlights

(In thousands)

 

     Three Months Ended
March 31,
    % Change  
     2017     2016        

Revenue

      

Service revenue (1)

      

Commercial

      

Voice and M2M data service

      

Voice and data

   $ 42,544     $ 42,723       0

M2M data (2)

     17,229       15,100       14
  

 

 

   

 

 

   

Total commercial voice and M2M data service

     59,773       57,823       3

Government service revenue (3)

     22,000       22,000       0
  

 

 

   

 

 

   

Total service revenue

     81,773       79,823       2

Subscriber equipment

     17,114       17,560       -3

Engineering and support (4)

      

Government

     5,068       6,114       -17

Commercial

     471       705       -33
  

 

 

   

 

 

   

Total engineering and support

     5,539       6,819       -19
  

 

 

   

 

 

   

Total Revenue

   $ 104,426     $ 104,202       0
  

 

 

   

 

 

   

Operational EBITDA

      

Operational EBITDA

   $ 64,340     $ 60,706       6

Other

      

Capital expenditures (5)

   $ 48,944     $ 75,822    

Net debt (6)

   $ 1,245,865     $ 1,079,521    

Cash, cash equivalents, and marketable securities

   $ 419,135     $ 412,137    

Credit facility

   $ 1,800,000     $ 1,593,761    

Deferred financing costs

     (115,621     (133,314  
  

 

 

   

 

 

   

Credit facility, net

   $ 1,684,379     $ 1,460,447    
  

 

 

   

 

 

   

 

(1) Service revenue consists of primarily subscription-based services which often generate a long-term recurring revenue stream from subscribers.
(2) M2M data service provides a two-way short burst data transmission between Iridium Communications Inc.’s network and a telemetry unit, which may be located, for example, on a container in transit or a buoy monitoring oceanographic conditions. Additionally, M2M data service provides position, navigation and timing technology through Iridium Communications Inc.’s one-way satellite timing, location, and authentication services.
(3) Government service revenue consists of voice and M2M data subscription-based services provided to agencies of the U.S. government through prime contracts or subcontracts.
(4) Engineering and support includes maintenance services to the U.S. government’s dedicated gateway in Hawaii and engineering services to assist customers in developing new technologies for use on Iridium Communications Inc.’s satellite system.
(5) Capital expenditures based on cash spent in the respective period.
(6) Net debt is calculated by taking the sum of the credit facility, less cash and cash equivalents, marketable securities, and the debt service reserve for the credit facility.


Iridium Communications Inc.

Subscriber Highlights

(In thousands, except ARPU)

 

     As of
March 31,
    % Change  
     2017     2016        

Billable Subscribers (1)

      

Commercial

      

Voice and M2M data service

      

Voice and data

     351       348       1

M2M data

     432       365       18
  

 

 

   

 

 

   

Total commercial voice and M2M data service

     783       713       10

Government

      

Voice and M2M data service

      

Voice and data

     45       41       10

M2M data

     41       34       21
  

 

 

   

 

 

   

Total government voice and M2M data service

     86       75       15
  

 

 

   

 

 

   

Total billable subscribers

     869       788       10
  

 

 

   

 

 

   
     Three Months
Ended
March 31,
    % Change  
     2017     2016        

Net Subscriber Additions

      

Commercial

      

Voice and M2M data service

      

Voice and data

     (2     (3     33

M2M data

     19       6       217
  

 

 

   

 

 

   

Total commercial voice and M2M data service

     17       3       467

Government

      

Voice and M2M data service

      

Voice and data

     1       1       0

M2M data

     1       2       -50
  

 

 

   

 

 

   

Total government voice and M2M data service

     2       3       -33
  

 

 

   

 

 

   

Total billable subscribers

     19       6       217
  

 

 

   

 

 

   
     Three Months
Ended
March 31,
    % Change  
     2017     2016        

ARPU (2)

      

Commercial

      

Voice and data

   $ 39     $ 40       -3

M2M data

   $ 13     $ 14       -7

 

(1) Subscribers as of the end of the respective period.
(2) ARPU is calculated by dividing the revenue in the respective period by the average of billable subscribers at the beginning of the period and billable subscribers at the end of the period and then dividing the results by the months in the period. Non-subscriber generated revenue is excluded from the ARPU calculation. Historically, government service revenue was driven by changes in subscriber count or ARPU, however under the terms of the EMSS contract, government service revenue is a fixed-price for unlimited subscribers. For this and future comparative periods, ARPU will not be presented, as it is no longer a relevant government service revenue metric.